Where do you enter payments received from business interuption insurance claims?

[PatriciaV · Accepted solution]

Yes, reimbursement claims on a Business Interruption Insurance policy are taxable as ordinary business income. Depending on your type of business, this income may be entered wherever you would report "other income."

The IRS considers these payments to be a replacement of income that the business would have earned during the event that caused the interruption. Also, most business expenses continue to accrue and/or be paid, and may actually exceed the amount of the reimbursement.

[stbscott]

We are a Trust, have received BI from our loss in the Maui Fire., lost a retail shopping center.  The income will be reported on a K-1 to the trustees, however the K-1 will not let me report Ordinary Business income and rental real estate income on 1 K-1, it says I must issue 2 K-1's, not allowed values on more than 1 line on the K-1 from lines 6-8, why not?  Why can you not have ordinary income and real estate income as that is how I am supposed to report it.  

[PatriciaV]

Separate K-1s are used to facilitate the IRS requirement to attach activity reports for each type of income. 

Per the Instructions for Form 1041 Schedule K-1 Boxes 6-8: "The fiduciary will provide you with a separate schedule showing your distributive share of income from each trade or business, net rental real estate, or other rental activity."

As long as you inform the trustees that both K-1s are to be included on their tax returns, there should be no effect on their tax situation.